Minister of Finance Pravin Gordhan recently proposed imposing VAT on foreign businesses who “sell e-books, music and other digital goods and services”. This will increase prices to South African consumers, said a tax expert.
Gerard Soverall, PWC ‘s head of indirect tax, said that if one considers the revenue generated by large online retailers, governments are losing out on large amounts of VAT.
Soverall said that the well-known online brands [like iTunes, Amazon, eBay and Steam] are the obvious targets for the new digital download tax.
“The large online retailers have a lower threshold for embarrassment when it comes to tax matters, so they will be easier targets than some of the sites which are more difficult to track down,” said Soverall.
Prices will increase for South African online consumers
Soverall argued that government’s new digital tax initiative is likely to result in price increases for local consumers.
“It is a profit issue at the end of the day. VAT at 14% in South Africa is a material number in your profits so online businesses will pass that on [to consumers]. There is not much doubt in that,” said Soverall.
However, Soverall argued that even if the 14% SA VAT is passed on to consumers, digital goods are still likely to be more affordable than the physical equivalent purchased in brick and mortar shops.
He added that this new ‘tax on online goods’ initiative by government is unlikely to slow the growth in online commerce.
Soverall said that there is also not a big chance that any online retailers will stop selling products to South Africans because of having to charge VAT.
“South Africa is a major player on the African continent, and it would not make sense for one of the major online players to suddenly stop partaking in the local economy,” said Soverall.